The Unfettered Pursuit of Happiness

March 12, 2011

You Can't Take it With You

It's recently occurred to me that when I'm in my 80's, my two-story, four bedroom house with a large yard may contain a few more toilets than I'll care to scrub in my advanced years. I feel pretty confident of this prediction because I'm already tired of scouring the extra bathrooms in my life.

When I computed how much I needed to save for retirement, I didn't consider the value of my home, since the equity over my head doesn't really translate into money in my pocket. One can argue the point that living somewhere rent-free is money in your pocket, but that would be ignoring the costs of maintaining and insuring said home, and in my neck of the woods, some pretty hefty property tax bills.

The other drawback of home ownership is that when you die with a house, you die with an asset you're not really going to be needing anymore (you know, since you're dead and all.) In our case, that means we'll be dying with another 17 years of living expenses trapped in that asset, which actually could have come in handy while we were still alive. More thoughts on this dilemma in my last U.S. News post, Three Ways Your Home Can Fund Retirement.

Downsizing, becoming a renter, or taking a reverse mortgage are all are fine solutions to the can't-take-it-with-you problem. But if you are considering a reverse mortgage, be sure to read the fine print. To avoid being kicked out of your own home before you arrive at your new destination six feet under, make sure you include both spouses on the loan. Read this article at the New York Times for more details.

Comments

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That's a good point about 'not taking it with you'. Since my retirement plan is to leave my children absolutely nothing, I hadn't thought about the home I would be living in when I'm 80-90.

Now, I'm thinking of selling the last home I'm living in around that age, moving into a rental or retirement community and putting into my will that any residue cash I have left at death be given to the ASPCA. Yup, dogs (and cats) are much, much better than ungrateful kids.

You were wise not to have children, Syd. As I get older, I seem to understand more and more. About life.

@Morrison: At the very least, selling and renting is something you can keep in your back pocket as a plan B, just thinking of it as an option gives you a little more breathing room.

Now while I won't try and argue that kids are better than dogs (you know where my sympathies lie), I will tell you that people that tell me that kids are not worth it almost all tell me that grandkids are. (Although one woman I met a few months ago told me grandkids ALMOST make it worth having kids.)

We are doing some renovations and upgrades to our current home since the drop in value means we won't be selling anytime soon. It has always bothered me we'd fix up a house just before selling it and never enjoy it. So, this time we decided to invest the money while we can enjoy it.

Most likely within 8 years we will move to a condo. We downsized from 3200 square ft to 1700 square ft when the kids left. I'm ready for even less!

We own our home free and clear so we would like to maximize the equity when we sell. Luckily there is no rush.

True, you can't take it with you. But even without heirs, you can leave something behind. You could give the house and estate to a charity as a testamentary gift. If you wanted to gain some benefit from this gift during your lifetime, you could look into something like a Life Estate agreement with an organization, which would allow you to remain in your home as long as you are alive. The charity benefits by gaining an asset on the event of your death -- and you may receive some tax benefits during your lifetime. There may be other arrangements as well, for example using the home's equity to fund a Charitable Gift Annuity which could generate an income stream during your lifetime. I'm not an estate planner, but it seems to me that there are a lot of creative ways you could tap into your home equity in your final years (for as long as you live), while at the same time leaving a legacy that fits your own giving philosophy (instead of padding a bank's bottom line).

@Bob: I agree, you should go ahead and make improvements you will enjoy. We had our house painted a few years ago, a sunny yellow instead of the dreary gray it was when we purchased it. It looks so much better, I wonder why we didn't do it earlier!

@Executioner: An excellent idea for anyone that doesn't actually need to supplement their retirement income (which may not be a whole lot of folks today.) In my previous life, I was a tax accountant so am pretty well versed on the subject. For those that are interested, I wrote about how to fund a Charitable Remainder Trust a few months ago:

your on to more then you realize. i can't tell you how many people i talk to age 60 to 80 who talk of just having a apartment. the extra cost of homes is not added to the equation. myself the yard. i spend 1000 to 1500 a year but not this year. if it's green then it's fine. when i was little i did not say," when i grow up i want to talk about crab grass". (for god's sake it's like talking about the weather.)

I haven't looked into it, but the reverse mortgage option seems very dicey to me. Strikes me that there would be many opportunities for the banks/lawyers to pull a fast one when you're old and not in good mental or physical shape. Just my prejudice ... maybe others have higher opinions of banks and lawyers.

If you need money, why not just get a regular mortgage? Or a home-loan line of credit? Sure, you have to pay some of it back, but you get to use most of it. Then, when your heirs sell the house, they pay back the balance.

Currently it is cheaper to rent than to own. As a homeowner, landlord and real estate broker I know this well.

Another solution, especially if you have a house with a lot of deferred maintenance (pc speak for a lot of broken things you can't afford to fix) you might consider renting a smaller place for yourself, then renting out your house at a higher rent than the rent you are paying. As soon as your primary house becomes a "rental" all of your repairs are deductible and worth doing.

Residential real estate in the San Francisco and San Francisco Peninsula area has and continues to be a good investment because of location, location, location and because there is no excess land on which to build new housing (a la Nevada and Arizona).

@Sightings: I think the trick there is qualifying for a mortgage or line when you don't have any income. You bring up a good point, though, it may be worth making sure you understand the terms of a reverse mortgage now if you think you may be using one in the future. Better to make an informed decision than one made in an emergency situation.

@Marisa: Another great option! (And so nice of you to join the discussion.) For those of you that love poetry, you should meander over to Marisa's blog.

Hi Syd. Your title reminds me a funny story. First, some context, we have three grown children (20, 22, 24), and would walk on coals for each of them. Each have made their own way in the world, now living in NYC, Boston, and Madrid.

They were all home this past winter and we were joking about my frugality ... I prefer the term thrifty :-). Anyway, I commented that I wouldn't purchase a certain item, because (tongue in cheek) I was planning to be the richest guy in the graveyard. Without missing a beat my son said, "that's great dad, keep the plan."

Your point is well taken. While we plan to leave inheritances, perhaps I don't need to be THE richest guy in the graveyard.

@Jacq: Thanks for your comment (here and over there). I don't think I'm supposed to comment over there, so I love when one of you guys says what I would have said!

It's even worse when one of those posts gets picked up by Yahoo, according to the Yahoos (as I affectionately call them) I'm a complete idiot. I take a deep breath, read each and every comment, and then say to myself, "How stupid can I be, I retired at 44. Not very."

@Rick: That reminds me of the email I just got from my dad this morning. He was at the coffee shop talking to his coffee shop buddies about this issue.

His observation: "The day after we die, all of our possessions will be out on the front sidewalk, being sold for pennies on the dollar." He thought that was pretty good, but what his friend said was even better: "You don't ever see hearses pulling U-haul trailers."

Dad's plan is also to leave his kid (me) what he has left when that day comes, he reminded me, "I hate to mention it, but you'll have two more yards and four more toilets to deal with when you finally have to deal with OUR houses. Love, Dad"

Thank you for the article. We also don' t have any kids but have nieces and nephews. We are considering retirement communities to move into while we are able to make the right decisions and social connections. Considering some of the above comments, my nieces and nephew only visit during the Holidays for their gifts and nothing else. You are right, we worked for our retirement and should use the assets to enjoy the last 17 years of life.

Definitely! No one is bringing all the assets he has to the graveyard. So it might as well better enjoy them now while we are living. Life is short and we don't know when is our time. Better yet celebrate every minute of it through responsible acts.